Sample Paper on The Impact of Multinational Firms on Local Labor Markets

Executive Summary

Globalization is fast making the world a global village. Today, companies operate across borders given the opening of the world market and advancements in transport and telecommunication. One of the driving forces of this trend is the emergence of MNCs, which are, on their very own, a force as far as globalization is concerned. Among the countries that have seen an upsurge in establishment of MNCs are China and Australia. In their globalized operations, MNCs have affected industries in their host countries immensely. Among the greatest effects are the introduction of a culture of research and development, human resource and infrastructural development, and the introduction of global business best practices.

One of the major areas that MNCs impact is the labor market. There are a number of similarities and differences on the impact of MNCs in China and Australia. The similarities include an upsurge in both emigration and immigration out and into the countries, shortage of skilled labor and improved remuneration systems in both the countries. On the other hand, the differences include the fact that while China’s immigrants are largely from the rural areas, Australia’s immigrants are largely from other countries. Additionally, while most Chinese MNCs have increased the demand for unskilled labor, their counterparts in Australia have largely increased the demand for skilled labor.

Introduction

The fast growing integration of the global economy has multinational corporations (MNCs) to thank on a large measure. These corporations are, in fact, the driving force of globalization across every sector of the global economy, be it automotive, manufacturing, or the service industries (Peter, Stephen and Lansbury 2012). One of the major characteristic of MNCs is their capacity to transfer human resource and industrial relations policies and practices across the global landscape, with a potential to influence local patterns of employment relations in the host countries (Peter, Stephen and Lansbury 2012). These policy transfers have been a source of conflict within the organizations, particularly between the management of the subsidiaries and the headquarters, with an inclusion of the local trade unions representing workers. While many nations laud the role of MNCs particularly in their role as financiers and sources of foreign direct investments, others see MNCs as unscrupulous profit-maximizing entities only out to exploit cheap labor in developing countries (Vincent 2012). Others still see MNCs as entities that have a positive impact especially on factors such as wages and employment.  One of the countries that has seen an influx in foreign direct investment (FDI) is China through MNCs. Most of these MNCs have found the favorable labor market in China supportive of their businesses, and therefore the increase in MNCs presence in China. With the establishment of the MNCs has come changes in the local labor markets. These MNCs have also had similar impacts on the developed countries’ labor markets, a case for reference being Australia. This paper will therefore look at the impact of MNCs in China and Australia, with an aim of comparing and contrasting the impact in the two countries.

General Impact of MNCs

Both developing and developed countries welcome the idea of FDI through MNCs. In the recent past, globalization, under the motivation of economy, has been on the increase with multinationals from across the world extending their operation in both the developed and developing worlds, depending on the opportunities the MNCs see available in the host countries (Sambhary and Jooh 2014). The decision to branch out into foreign countries, therefore, have far reaching effects on both the MNCs and the host countries. These effects are both negative and positive, and depending on the market, MNCs may decide to continue their operations or move out of the host countries.

Part of the decision to move operations overseas for MNCs stems from the consideration of the financial costs of overseas operations against local operations. MNCs are likely to save on the shipping costs on sales to the host countries, significantly lowering their wage bills, in comparison with their operation in their home countries. This is particularly true for the developed countries, which have a higher minimum wage (Kamra and Davin 2015). Largely, such decisions impact host countries by creating job opportunities, while at the same time denying the home country job opportunities. Moreover, MNCs can also easily used these foreign facilities to export the finished products to their mother countries and other markets at a reduced cost, increasing their profits, given the low cost of production (Kamra and Davin 2015).

In their establishment in host countries, particularly the developing world, the environment is customarily characterized by weak infrastructure, governance issues, poverty and illiteracy as well as income disparities. However, the environment is usually also lined with a strong traditional social structure, with the family providing a strong social bond (Khalid 2012). Through these social bonds, therefore, MNCs find it easy to introduce financial and technological resources and expertise. The MNCs introduce a culture of research and development, as well as human resource development. While these may only target the organization, there are spillover effects to other local enterprises through exchange programs and emulations (Khalid 2012).

In running the businesses, most MNCs transfer organization culture and good business practices to their subsidiaries. Among these include good governance, transparency, crisp command structures, innovation and employee incentive programs, which enhance merit systems. Most Chinese companies today are working to build brands, with marked influence in the global environment. Companies such as Lenovo, HTC and Huawei are all established Chinese brands, having learnt this from multinationals such as Tesla, Coca-Cola, Apple, Dell and HP among other MNCs. Today, these Chinese companies are global forces in their respective industries, with investment both at home and abroad. Companies such as Lenovo have recently increased their international reach through the purchase of Motorola Mobility, making it one of the largest technological company in the world.

Through their community social responsibility programs, MNCs help in the improvement of local infrastructure and at times of disasters. Companies such as Coca-Cola, Nokia and McDonald were instrumental in giving donations and repairing infrastructure after an 8.0 earthquake hit China. Moreover, these same companies such as Samsung have invested in education programs in China. Such programs help in national capacity building, as well as increasing the number of skilled labor in the labor market.

Important, however, is the fact that in their operations, MNCs pose challenges to the host countries. One of the challenges posed is conflict of interest. Thus, while it is in the interest of MNCs to purely rip economic benefits from the host countries, this may not entirely be the intention of the host countries (Khalid 2012). Some of the host countries may require that MNC operations align with the country’s social, economic and political needs, such as provision of employment to the locals. MNCs may however look at local labor as not only costly due to their lack of grip of the organizational culture, but also tedious in training. This may be a major source of conflict of interest between the MNC and the host nation.

MNCs additionally promote materialism and consumerism among the host nations. By promoting lives in the fast lane, goods that offer instant gratification as well as instant foods, MNCs encourage the culture of materialism and consumerism. Moreover, this change also extends to the local culture. MNCs introduce events and fads that are contrary to the local culture, and in so doing completely eroding the local culture.

The Labor Markets

By virtue of their culture and development status, the labor markets in China and Australia are fundamentally different. China remains the country with the largest workforce in the world. As of 1999, China had a total workforce of 751 million, accounting for 26 percent of the world total labor force. China has additionally, over the past 30 years seen a change in its labor force, with a dismantling of the notion of urban dwellers having guaranteed jobs in state and collective-owned enterprises (Anthony 2011). With a rapid growth of the industries, particularly through the establishment of the MNCs, more rural immigrants have found their way into these industries, and compete for job opportunities with the traditional urban dwellers. China’s labor market (15-64 years) significantly increased to 74.5 percent of the nation’s population in 2010 (from 70 percent in 2000). With this increase, there has been a significant reduction in the dependency ratio. Further, the nation’s urban population is also increasing, currently standing at 50 percent, a reflection of increased rural migration. This increase is also a reflection of increased urban employment, moving from 20 percent in the 70s to 40 percent in 2009 (Anthony 2011). Noteworthy is the changing nature of the nation’s urban employer. While 90 percent of China’s urban employees were employed by state-owned or collectively owned companies in 1990, the percentage has drastically dropped to only 30 percent as of 2010 (Anthony 2011). This is largely attributed to economic reforms, which have seen an increase in MNCs operations in the country, as well as local privately owned firms.

The classification of the labor force and the labor market in Australia has three categories namely employed, unemployed and not in the labor force. The characterization of the unemployed and employed looks at those above 15 years of age, and sees the two categories as the major contributors to the labor force. According to the Australian Bureau of Statistics, the country’s labor force grew by 1.7 percent between 2010 and 2011, with an increase of 1.5 percent of individuals aged 15 and above (Australian Bureau of Statistics 2012). Of its 23 million population approximately 8 million were in full-time employment, while 3 million had part-time employment. Approximately 600,000 of the Australian population was unemployed. With a large urban population and high literacy levels, there is a high participation of the population in the labor force. More women are involved in the labor force, at highly paying jobs in comparison with China where a large population of working women are casual laborers in sweatshops and electronics assembly factories.

Impact of MNCs in China and Australia: Similarities

Both China and Australia have experienced an influx of MNCs, which have established their operations in the two countries. At the center of the increased activity of these multinationals is globalization, which continues to push MNCs to look for favorable countries for operations in their bid to maximize their profits. With a focus in manufacturing, most of these MNCs have established their operations in both China and Australia, using the unskilled labor that is abundant in the two countries. While the foreign immigrant population supplies most of the labor in Australia, the rural immigrant population supplies China’s industrial labor (Tang-Tai and Keong 2015). Thus, the industrial labor for the two countries is supplied by migrant population, a situation that has increased the population in the urban areas for both countries.

With the establishment of the industries, most of the population that make it to the urban centers as aforementioned are migrant population. However the bulk of this migrant population is largely illiterate or semi-literate, and are therefore only suitable for unskilled labor. Chinese rural population that seek employment in the urban centers are largely illiterate. Immigrants into Australia are also largely illiterate, coming into the country with the hope of finding employment to escape poverty in their native countries. The establishment of manufacturing factories in the two countries by the MNCs therefore offer viable employment opportunities for these individuals. The result however has been a growing shortage in skilled labor. According to Siddique, the changing nature of the global economy from a manufacturing to a knowledge-based economy is doing more harm than good to the migrant population. Most of the MNCs are fast changing into the knowledge-based economy, which not only impacts on the labor market, but also on the economy (Siddique 2012; Tang-Tai and Keong 2015).

Many of the MNCs into China have been in the manufacturing industry. This has seen a growth in the number of unskilled laborers in the urban areas. However, with this influx and a demand for unskilled labor, there has been a shortage of skilled labor (Tang-Tai and Keong 2015). Similarly, Australia has experienced emigration of its skilled labor as a direct result of MNCs. The result has been a shortage of skilled labor, even as some of the immigrants into the country offer the much needed skilled labor.

 

Impact of MNCs in China and Australia: Differences

One of the major differences between the impact of MNCs in China and Australia is on the labor force. Thus, while MNCs in China influence immigration into the urban centers, MNCs in Australia largely trigger immigrants from other countries into Australia. Although the immigrant in both countries offer unskilled labor, a large number of immigrants into Australia also offer skilled labor, a stark contrast with Chinese rural migrants, who mostly look for unskilled employment in manufacturing and processing industries. The results of the immigration in both countries have been profound. The rural population in China has seen a great decrease, while the general Australian population, while experience an increase in general population, and has experienced a decrease in skilled labor (Siddique 2012).

Many of the MNCs branching into China have had to tailor the market and the labor to the local environment. Most of them have had the need to train and nurture the labor force in the MNCs organizational culture. The result has been a spillover effect on the Chinese labor market with more of the laborers gaining requisite skills. On the other hand, given the higher level of development among Australian laborers, many MNCs have not had the need to train the laborers, apart from the few immigrant laborers.

Another stark difference between the impact of MNCs in China and Australia is the difference in demand for the type of labor. The majority of MNCs establish manufacturing operations in China than in any other country in the world (Sambharya and Jooh 2014). The manufacturing operations, while in need of skilled labor, have a higher demand for unskilled cheap labor, evidently in abundance in China from the rural population.  On the other hand, MNCs establishing operations in Australia aim at the skilled labor available in the country. In essence, therefore, Australian-based MNCs increase demand for skilled labor, while Chinese-based MNCs increase demand for unskilled labor.

Conclusion

MNCs play an important role in the global economy. Increased globalization has in large part contributed to the establishment of MNCs in different countries around the world. The presence of MNCs in any country come with both its advantages and disadvantages. Among the advantages that MNCs bring to host countries include the introduction of international business best practices, which go a long way in improving standards within the host countries. Moreover, MNCs catalyze the establishment of infrastructure as well as the introduction of new technologies. This is in addition to fostering pluralism, important in enhancing both local and international cohesion. Among the countries with a considerable number of MNCs are China and Australia. The presence of MNCs in these countries has had a great impact on the labor market in the two. Among these are increased immigration into the urban centers of the two countries from immigrants looking to get employment in the urban centers. While the Chinese immigrants are largely the rural population, a high number of immigrants into the Australian urban centers are non-Australian born individuals. Both countries have additionally experienced emigration. Driven by the presence of MNCs, the result of the immigration and emigration has been a shortage of skilled labor, as most of the skilled labor migrate to other countries in search of other opportunities. Thus, MNCs have a great impact on the labor market, sanctioning the need to put measures in place to ensure that their presence does not negatively affect the labor market, as is the case of Australia’s shortage in skilled labor.

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